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A London court has rejected Argentina’s appeal on a ruling that left it facing a $1.5bn payment to four hedge funds who bought its GDP-linked securities, in a blow to the cash-strapped government of libertarian President Javier Milei.
In 2013, Argentina changed the way it calculates GDP, which it argued meant it did not need to pay interest on the euro-denominated securities — issued between 2005 and 2010 as part of a debt restructuring — which were tied to GDP growth.
Palladian Partners, HBK Master Fund, Hirsh Group and Virtual Emerald International Limited, which hold about 48 per cent of the securities and which like many emerging market bonds are governed by English law — brought a case against Argentina in 2019 asking to be compensated for their losses and the court ruled in their favour in 2023.
Argentina’s economy is in the depths of a severe economic crisis, with inflation running close to 300 per cent, foreign exchange reserves dangerously low and billions of dollars in payments to foreign creditors looming. The country’s lawyers had argued that paying the hedge funds would affect its ability to service its other debts and cause “harm to the people of Argentina”.
Buenos Aires has faced a series of legal challenges from former investors, including several dating to the 2007-2015 government of leftist president Cristina Fernández de Kirchner. Last year, a New York court ruled that Argentina was liable to pay $16bn to two former shareholders of state energy company YPF, which was renationalised in 2012 — the largest-ever ruling against a sovereign in a New York court.
Sebastián Maril, a director at consultancy Latam Advisors who has followed Argentina’s overseas litigation closely, said that Wednesday’s ruling was “proof that Argentina’s legal strategy is not working”.
“We have almost always lost these cases, and continuing to appeal and delay is throwing money away and allowing interests and legal costs to build,” he said.
In April, a New York court ruled against plaintiffs in a similar case relating to Argentina’s dollar-denominated GDP-linked securities, saying they had not complied with steps for bringing such a case laid out in the bond contracts. The plaintiffs are appealing.
Earlier this year, as a condition of its appeal Argentina deposited €310mn to be held in escrow pending the London court’s ruling.
It is unlikely that Argentina will be able to pay the full judgment — worth €1.33bn plus interest — in the short term. Its foreign reserves, excluding liabilities, are hovering around zero, even after a months-long push by the new government to build them up.
“The government should sit down with all of its judgment creditors to negotiate a macro deal with them,” said Maril. “Not to pay now, because it’s very difficult to do so, but to agree on a timeline to pay in the future.”